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Who Knows Debt Collection Rules?

Should student loan borrowers have a chance to know the rules and strategies used by debt collectors?

The U.S. Department of Education appears to be saying no, at least for now, to the dismay of consumer rights and government transparency advocates.

The department says it is just temporarily removing from public view its procedures for the companies it hires to collect from defaulted student borrowers. Education says it is “reviewing” what should be public. Once the review is “complete, we will re-post all appropriate information,” the department says. Meanwhile, the department directs borrowers having trouble making payments to its Guide to Defaulted Student Loans.

But many outside the government are worried. The guide designed for borrowers is incomplete, says Deanne Loonin, a student debt expert for the National Consumer Law Center. The site designed for collectors gives borrowers updates on changes to rules and practices “you can’t get anywhere else,” Loonin says. Loonin would regularly compare what debt collection agencies told her clients with the laws and specific procedures posted on the collectors’ site to make sure her clients were treated fairly and legally. She says this is the first time she started using the site in 2004 that she has noticed the department hiding the collections procedures from the public.

Many transparency advocates also worry that the department’s move contradicts the Obama administration’s lofty rhetoric. “A democracy requires accountability, and accountability requires transparency,” President Obama declared in a memo on his first day in office. “Agencies should take affirmative steps to make information public. They should not wait for specific requests from the public. All agencies should use modern technology to inform citizens about what is known and done by their Government,” the president ordered.

Kathleen Day, a spokeswoman for the Center for Responsible Lending, a borrowers’ rights organization, says the rules and procedures should be public “to make sure that everyone is playing fairly, and to prevent abuses by debt collectors …If you believe in the free market, there has to be a free flow of information,” she argues.

Last year, the department posted its full 292-page rulebook for the private collection agencies it hires to deal with people who are behind on their federal student loans. A student loan industry analyst, Tim Ranzetta, summarized it on his Student Lending Analytics Blog,. The government took the rulebook down from its site after a few months, but Ranzetta posted the manual on his site. Earlier this spring, I downloaded a copy, and wrote a blog post and an article giving tips gleaned from the manual. Borrowers who don’t read the manual might not be aware, for example, that federal student debt collectors are permitted—but not required —to accept settlements as low as 90 percent of the debt.

I called the department before I published my articles to make sure the 2009 rulebook wasn’t outdated. Instead of verifying any information, a department spokesman said the manual had been posted by mistake. He asked me to kill the stories because the government wants borrowers to pay every penny they owe, and borrowers might not do that if they knew that a smaller settlement was possible.

But legal and consumer rights experts I checked with argued that all citizens and borrowers should have access to debt recovery rules and procedures. “I don’t see any legitimate interest in the government keeping private this information (regarding their recommended standard operating procedures in dealing with student debt), particularly where it has already disclosed the same information to non-govermental actors, and those with resources to hire lawyers,” emailed Gary Blasi, a UCLA law professor and specialist in public interest law.

Shortly after my posts hit the Web, the department removed from public view almost all of the other the collections rules and procedures it had posted. I have been calling and emailing for weeks asking who is performing the review of the collections information, when the review will be finished, and whether borrowers’ interests are being taken into account. Not only have department officials refused to answer, but the spokesman I’ve been dealing with insists that the vague answer quoted above only be attributed to the department and not to him by name.

The debate over how much collections information the government should share with borrowers is starting to attract the attention of a larger audience, including the Center for Public Integrity.